Most firms say there has been no improvement in finances in Q1 of 2023

Most small and medium businesses in Scotland say there has been no improvement to sales, cashflow, and investment in the first quarter of 2023, according to figures from the Scottish Chambers of Commerce.

The quarterly economic indicator showed there were some signs of hope and increased confidence, but this came from a “very weak base”.

Many businesses are still struggling in the face of rising cost pressures and high inflation, as well as continuing to face challenges regarding access to the labour market.

Scottish Chambers of Commerce has been running the quarterly economic indicator since 1990 – and 320 businesses responded in 2023.

Concern over inflation remains high among all firms and has seen little movement over the quarter, with still around eight in 10 firms (82%) reporting increased concern from it.

Three quarters of businesses say they faced increased cost pressures from energy costs and 70% say they faced increased costs from labour and salary increases.

Some 55% of businesses have experienced higher petrol and diesel costs and half of the businesses surveyed said they had higher costs for raw materials.

The manufacturing sector was the only sector to report growth for cashflow and not a contraction. Similarly, the services sector was the only sector to report growth in profits.

More businesses reported a fall in cashflow (43%) than reported an increase (31%), reflecting the difficulties faced by notably the retail and tourism sectors.

Stephen Leckie, president of the Scottish Chambers of Commerce said: “The beginning of 2023 has seen improvement in the prospects of some sectors of the Scottish economy, in line with recent economic data that has been more positive than previously expected.

“While we see the construction, services and manufacturing sectors reporting better results, we must note that this comes from a very low bar set by the past few years of constant and seemingly never-ending challenges for business.

“We also see the retail and tourism industries continuing to struggle in the face of these headwinds.

“The survey also indicates that many of the big challenges that faced firms in 2022 are continuing to persist in 2023.

“Cost pressures continue to rise alongside concern from energy bills, inflation, labour shortages, alongside growing uncertainty in the global economy.

“There is a large in-tray of issues for the new First Minister and his cabinet to work with businesses to address, to help put the Scottish economy back onto a path towards unlocking growth and investment.

“One of the most consistent themes in the survey results is the high number of firms antidotally highlighting increased concern from current and or future regulatory burdens.

“These include the deposit return scheme; short-term lets; alcohol advertising; tourism visitor levy; rent controls; to name but a few, and that’s why we pressed all the SNP leader candidates in their leadership contest to commit to reducing business regulation which is adding to the cost of doing business in Scotland.”